Economies of scale and international trade patterns part 1
Economies of scale a quick review Economies of scale, definition: When you produce a good or service at lower unit cost for each extra unit you produce, you are achieving economies of scale. Example: Cost to produce 10,000 cars = €70,000 Cost per car = €7,000 Cost to produce 25,000 cars = €150,000 Cost per […]
The Economics Of Dumping
What is dumping? Dumping is a form of price discrimination across borders. Price discrimination is the practice of charging different customers different prices for the same or similar products/services. For example you might pay €90 per night for a hotel room and another person €60 per night for the same grade of room. The hotel […]
Trade Policy in Developing Economies
There are some common themes in trade policy in developing economies Favoring manufacturing Attempts to use trade to cure uneven development (the dual economy) Trade policy is often seen as a cure for the unfair international economic system Why manufacturing? Prestige: manufacturing is visible evidence of progress i.e. factories are sexy! Manufacturing jobs almost […]
International Labor Mobility
Effects of international labor mobility This article summarizes the effects of international labor mobility. At the end of the written article is a video highlighting the points for people who prefer audio visual learning. However, I recommend you read first and then watch. To explain the effects of international labor mobility we will imagine a […]
Industrial Policy In Advanced Economies 2
Sophisticated Arguments For Industrial Policy in Advanced Economies In this second section about industrial policy in advanced economies we will examine some sophisticated arguments for industrial policy. These arguments often do hold water. However, as usual we will see that governments’ good intentions do not always turn into desirable results. Technology and externalities The idea […]
Industrial Policy In Advanced Economies Part 1
We’ll look at two sets of arguments for industrial trade policy in advanced economies. The first sets of arguments are the popular ones that are often voiced in newspapers, politicians and trade unionists, businesses that want government aid, and the “man in the pub”. In this first post we will examine the popular arguments. Popular […]
International Economics Barriers to Trade
Countries put up many barriers to trade in order to protect domestic industries from foreign competition. Tariffs: Tariffs are taxes that are levied on imports. Quotas: Quotas are limits on the number of units/weight (or sometimes the value of goods) imported into a country. The quota might be on the products from all countries of […]
Comparative advantage David Ricardo’s Trade Theory
Absolute Advantage To understand comparative advantage we first need to understand absolute advantage. Absolute advantage in the production of a good means that you can produce more of the good with a given amount of a production factor. The factor that we usually use in Ricardian trade theory is labour. Country Widgets per hour […]
Comparative Advantage And Trade
Comparative advantage is a critically important concept to understand when talking about trade, and especially when you want to show doubters the potential benefits of free trade. I’ve found this very good video explaining the principle of comparative advantage. It’s both entertaining and enlightening and saves me the trouble of recording my own explanation! I’ll […]
What Is Opportunity Cost?
The concept of opportunity cost is one of the most important in economics, therefore it is worthwhile revisiting the definition. So, what is opportunity cost? The opportunity cost of something is the value of everything you have to give up to buy it. For an activity it is the value of everything you have to […]